Introduction
The yields on Mexico’s Certificados de la Tesorería de la Federación (Cetes) operated mixed during Banco de México’s (Banxico) auction, as investors anticipate a pause in interest rate cuts. Meanwhile, the global fixed income market experienced selling pressure due to a wave of sales in Japanese bonds.
Cetes Yields Details
The 28-day Cetes interest rate was set at 7%, marking a marginal increase of 0.01% compared to the previous auction. Last week, the shorter-term Cetes reached its lowest level in over three and a half years. The amount placed was 5,500 million pesos, with demand being 3.08 times the amount placed.
The 91-day Cetes yield dropped by 0.03% to reach 7.10%, continuing its downward trend for three weeks, accumulating a decrease of 14 basis points. 6,000 million pesos were placed, with demand being 3.28 times the amount offered.
Investor Expectations and Banxico’s Stance
Investors expect Banxico to pause its interest rate cut cycle at the upcoming meeting on February 5, although they anticipate further reductions in the future.
Jonathan Heath, Banco de México’s deputy governor, recently stated in an interview that the bank’s governing board might maintain the interest rate without changes in the next monetary policy decision.
“I believe we have more than enough awareness, and we need to see more results before continuing to lower the rate in the future. For now, I would say it’s almost a certainty that the rate will be on pause, which is what I expect,” said deputy governor Heath.
Market median predictions suggest that the national reference rate will remain unchanged at 7% by the end of the first quarter of 2026, according to Monex Casa de Bolsa information.
Global Market Influences
Investors are closely watching the sell-off wave recorded on Tuesday in Japan’s debt market, which caused yields to surge to record levels. This could potentially lead to contamination in other markets.
An auction of 8,000 million pesos for the 182-day Cetes took place at a rate of 7.26%, an increase of 0.07%. This ended five consecutive weeks of declines. The instrument saw demand at 2.18 times the amount offered, lower than the previous auction.
The 350-day Cetes yield rose by 0.06% to reach 7.50%, with 18,500 million pesos placed and demand at 1.95 times the amount offered.
Additionally, a 16,000 million pesos MBono auction with a February 2036 maturity took place at a rate of 9.21%, a marginal increase of 0.01% compared to the previous issuance. It was its third consecutive auction with rate hikes and had demand at 1.88 times the amount placed.
Udibonos with a 20-year term and a November 2043 maturity were also auctioned at a rate of 4.54%, a decrease of 0.13%. The amount placed was 7,372.22 million pesos with demand at 1.99 times the amount offered.
Key Questions and Answers
- What are Cetes? Certificados de la Tesorería de la Federación (Cetes) are Mexican government bonds issued by the Mexican Treasury to finance public spending.
- Who is Jonathan Heath? Jonathan Heath is the deputy governor of Banco de México (Banxico), responsible for monetary policy alongside the bank’s governor.
- Why are investors anticipating a pause in rate cuts? Investors expect Banxico to pause its interest rate cut cycle, as they believe the current monetary policy is sufficient and further reductions might not be necessary.
- What impact could the Japan bond sell-off have on other markets? The sell-off in Japan’s debt market could cause a surge in yields, potentially leading to contamination in other markets as investors seek higher returns.
